Defence out of depth in billion-dollar contracts

By
Lucy Battersby and Ben Butler

March 8, 2013, 3 a.m.

Defence Force mandarins are calling for private sector help after admitting the organisation lacks the skills and ''general business acumen'' to prudently negotiate billion-dollar contracts with America's military-industrial complex.

Defence out of depth in billion-dollar contracts

Defence Force mandarins are calling for private sector help after admitting the organisation lacks the skills and ''general business acumen'' to prudently negotiate billion-dollar contracts with America's military-industrial complex.

The move by the Defence Materiel Organisation comes after the latest review of major projects found they were running 32 months behind on average.

Of 29 major projects worth $47.3 billion, 18 have ''experienced schedule slippage'', the Australian National Audit Office said.

It also noted that while DMO was confident 91 per cent of projects would be delivered on time, the audit office found this was ''in some cases overly optimistic''.

DMO chief executive Warren King said the panel would start operating by the middle of this year and would only be used where special assistance was needed.

A permanent ''negotiation cell'' inside DMO would cost up to $400,000 a year, he said.

At a national security lecture in late February, Mr King said a recent study found DMO's major project cost overruns were less than in the private sector, and delays were comparable.

Admiral Chris Ritchie, the recently retired chairman of the Australian Submarine Corporation, which built the Collins Class submarine fleet, and a former chief of the navy, said a 2007 review found that ''people in Defence didn't have bottom line responsibility in a profit or loss sense for what they did, and that breeds a different kind of management structure'', adding ''they need to have more commercially experienced people on staff''.

Current projects of concern include the $3.6 billion purchase of 46 multi-role helicopters from an Australian subsidiary of European defence giant EADS to replace the Black Hawk and Sea King fleets.

The project was officially flagged as troubled in November 2011 and a report released by DMO in January shows it has fallen behind schedule.

Sustaining the navy's six Collins Class submarines, which costs $500 million a year, has been on the government's projects of concern list since 2008.

The $12 billion Joint Strike Fighter project has also suffered delays but is not listed as a project of concern because it still considered to be in development.

Australia agreed to buy 100 of the jets in 2002, with the deadline fast approaching to deliver the first two aircraft in 2014-15.

DMO signs about 100 contracts a day and has an annual budget of $8 billion, about 37 per cent of the Defence budget. Its purchases range from underwear for soldiers to planes and warships.